This is an audio transcript of the FT News Briefing podcast episode: ‘US defence stocks get left behind’
Marc Filippino
Good morning from the Financial Times. Today is Tuesday, March 4th and this is your FT News Briefing.
The White House is pulling the plug on military assistance to Ukraine. And US defence stocks are getting left in the dust. Plus, we take a look at how tariffs on Canada and Mexico could mess with an iconic American car. I’m Marc Filippino and here’s the news you need to start your day.
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US President Donald Trump is suspending American military aid to Ukraine. The White House made the announcement late last night. Trump’s been trying to end the war in Ukraine pretty much since taking office. But he wants Kyiv to make concessions to Russia that Ukrainian President Volodymyr Zelenskyy won’t accept. The US has contributed a steady flow of weapons to Ukraine since Russia began its full-scale invasion more than three years ago. Trump and Zelenskyy had a tense exchange during a visit to the White House last week. They were scheduled to sign an agreement that would give the US access to Ukraine’s critical minerals. That did not happen. But some Republican lawmakers think the deal is still on the table.
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Americans sure are passionate about their trucks.
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Chevrolet’s Silverado has been one of America’s most popular pick-ups for decades now, but the truck is mostly made outside of the US, which makes the car especially vulnerable to President Donald Trump’s tariff plans. On Monday, Trump said a 25 per cent levy on all Canadian and Mexican imports would go into effect at midnight. Here to explain what it means for Chevy’s owner General Motors is Kana Inagaki. She’s the FT’s industry editor. Hi, Kana.
Kana Inagaki
Hi.
Marc Filippino
OK. So just walk me through the production process for a typical Silverado truck.
Kana Inagaki
Sure. So we decided to focus on the Silverado truck because it’s just a really good example of how complicated and interconnected and global the automotive supply chain is. First of all, it’s built in factories in the US, Mexico, as well as Canada. And if you look at the components, the supply chain is even more complicated. So, you know, for example, we can see the power steering and like door trim panels come from Mexico. The rear lighting could come from Canada, the airbag module could come from Germany. So you can see that this is a really good example of, you know, just how complex the whole entire supply chain is for this pick-up truck.
Marc Filippino
Yeah, it’s like a supply-chain Frankenstein, which kind of makes Trump’s tariff threats even more palpable in this case. But in what ways have they already affected GM’s business planning?
Kana Inagaki
So GM has said that, you know, it’s actually been preparing for these tariffs since the election of Donald Trump, and they’ve already shifted some production and reduced inventory at plants outside the US by nearly a third. But beyond the shifting of the production, just the whole level of uncertainty surrounding how much of these tariffs are actually going to be implemented, that has really made it difficult for carmakers to make these decisions because, you know, shifting production to the US is one possibility, but it takes time and it also is costly as well. So that uncertainty has really added to the whole level of the challenges that these tariffs have posed for the industry.
Marc Filippino
Kana, it’s important for our listeners to know we’re taping this on Monday and the tariffs are set to go into effect at midnight. Say they do go into effect and they stick around for a while, what could that do to the cost of a Silverado?
Kana Inagaki
So, already executives not just as General Motors but, you know, at Ford as well have said that it’s going to be very difficult for the carmakers to absorb the entire cost. We know that ultimately the consumers will have to pay for the higher cost. And so this will mean, you know, higher costs for the Silverado as well. You know, with the inflation as well, vehicle prices have already been rising. So for consumers, the tariff cost will be another additional cost burden for them.
Marc Filippino
OK. So besides the cost, what are some of the other potential downstream impacts of these tariffs for GM and other car companies like it?
Kana Inagaki
Sure. So the biggest concern for the industry is that if the tariffs lead to higher costs of vehicles, then it will probably lead to lower demand for vehicles in general. So that would really hit the car industry as a whole if, you know they’re selling less vehicles in the US. I think some analysts have estimated that GM’s operating earnings will take a 7 per cent hit. So that would also, you know, add another layer of burden for GM.
Marc Filippino
Kana Inagaki is the FT’s industry editor. Thanks, Kana.
Kana Inagaki
Thank you.
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Marc Filippino
Eurozone inflation fell for the first time in four months. In January, it was at 2.5 per cent year on year, but last month, down a smidge to 2.4 per cent. Core inflation, which strips out changes in things like food and energy prices, was down in February as well. And importantly, price pressures on services fell to their lowest level since about a year ago. All this is good news for people who are rooting for lower interest rates. Experts say yesterday’s report gives the European Central Bank a green light for more cuts, and the ECB is expected to do just that when it meets this week.
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Share prices and global defence stocks have shot up since Donald Trump returned to the White House. But believe it or not, America’s top companies have been missing out on the party. I’m joined by our industry correspondent, Sylvia Pfeifer to explain why. Hey, Sylvia.
Sylvia Pfeifer
Hi, Marc.
Marc Filippino
OK, so if not the US, where are we seeing a jump in defence stocks and why?
Sylvia Pfeifer
Well, the sort of main rally has really happened in Europe. If we look at what happened yesterday, shares in the sort of biggest defence companies were all up over 10 per cent. So shares in Rheinmetall, which is Germany’s largest defence company, was up about 14 per cent on Monday. Leonardo, Italy’s defence champion, was up over 15 per cent. And BAE Systems, which is the FTSE 100 company here in the UK, the shares gained just over 14 per cent. So it’s a huge rally as investors are really betting that governments across the region will boost their military spending as Donald Trump’s administration in the US has urged Europe to pay for its own security, really.
Marc Filippino
And like I said, the US is missing out on this, right? But it’s a little strange to me to hear that because aren’t they also big suppliers of weapons to Europe?
Sylvia Pfeifer
Yes, they are. So the sort of so-called prime defence companies in the US — the Lockheed Martins, the Northrop Grummans, the General Dynamics companies — they have all supplied Ukraine as well, obviously, or most of them have. But in the US the narrative is a little bit different. So there’s sort of uncertainty in terms of what might happen to defence spending in general in the US. There is the prospect of cuts across government workforces by the Elon Musk-led Doge department. There is some concern that as Europe tries to bolster its own resilience, that US companies might lose out to European players. So there’s a whole sort of mix of factors.
Marc Filippino
Sylvia, can you give me a sense of how much US defence stocks are trailing behind European defence stocks?
Sylvia Pfeifer
If you think of how the shares in European companies have surged almost 40 per cent since Trump returned to the White House in January, by comparison, shares in the six largest defence companies have fallen about 4 per cent over the same time period — so Lockheed Martin, Northrop Grumman, General Dynamics, Boeing. So they are among the companies that are most heavily reliant on federal spending and also therefore braced for potential cuts to the Pentagon’s annual budget. There was a memo that came out recently from the defence department in the States saying they were aiming to cut about 8 per cent, so that would be about $50bn of spending in the fiscal year of 2026.
There’s also a second thing on the horizon. Donald Trump’s new administration has talked a lot about the need to open it up to more technology-led players, the likes of Palantir and Anduril, who make a lot of drones. So again, there’s a sort of concern that these new technology-led players might be winners from any sort of shake-up in the Pentagon procurement.
Marc Filippino
So does this look like a permanent shift for the industry to you, Sylvia?
Sylvia Pfeifer
I don’t think we can say that we will see a repeat of the recent market moves. I think some of the analysts are saying that some of the initial market reaction might be a bit of a stretch. Even if there is higher defence spending in Europe, it will take time for it to filter down through to industry. Similarly, in the States, even if the short-term outlook is slightly murky, defence spending in the US is likely to rise over the long term. Also, given other tensions that the US is focused in Asia and in the Indo-Pacific. So any sort of defence spending will take time to filter through. So potentially not an immediate big bang for the sector in the short term.
Marc Filippino
Sylvia Pfeifer is the FT’s industry correspondent. Thank you, Sylvia.
Sylvia Pfeifer
Thank you.
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Marc Filippino
Before we go, we had an incorrect figure in yesterday’s show. We should have said that during 2024, Deutsche Bank earmarked €1.8bn for potential losses.
You can read more on all of these stories for free when you click the links in our show notes. This has been your daily FT News Briefing. Check back tomorrow for the latest business news.
